Local Public Finances in Ghana

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Local Public Finances in Ghana

Guy Gilbert, Réjane Hugounenq, and François Vaillancourt

History of Decentralization in Ghana:

From Independence to 2010

In Ghana, as in many African countries, the first forms of local government date back to the colonial period. Three hundred fifty-five native authorities had thus been created, mainly in rural areas, and organized around the traditional chieftaincies. Meanwhile, in urban areas, the Municipal Ordinance of 1859 had established the first municipalities in the coastal cities of the Gold Coast. How- ever, it was not until the 1950s that elected town and municipal councils were set up. The legal foundations for these councils’ activities (the Ordinances of 1943 and 1953) were developed over the two decades or so prior to the country’s independence on January 6, 1957 (Ahwoi 2010a; Fischer 1957).

Immediately following independence, and despite the federalist demands of the Ashanti Confederacy and the Northern State, Ghana became a unitary republic.¹ The Independence Constitution (1957) divided Ghana into five regions that initially had assemblies elected by universal suffrage. However, these survived no more than a year. The 1960 Constitution increased the number of regions to eight but did not grant them any substantive power.

On the whole, Ghana’s regions were to remain, at best, deconcentrated levels of government with no real powers. This can be explained by the overriding goal of building national unity, as well as by the fear that a power-sharing process could exacerbate territorial divisions in a context of ethnic fragmentation (Asante 2007; Jacquemot 2007). For the same reasons, the first president, Kwame Nkruma (1957–66), centralized power within the Office of the President, as did his successors, at least until the 1980s.

1957–66: A Strong Central Government

To all extents, right after independence, Ghana’s territorialized public institutions were characterized by a dual hierarchical pyramid: central government institutions were powerful and present at the local level as deconcentrated

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administrative units, while local authorities (for example, the elected municipal councils in Accra, Cape Coast, Kumasi, and Sekondi-Takodari) were clearly separate from the deconcentrated structures but had little democratic legitimacy, a narrow range of competences, and limited financial and human resources. The whole system operated in a national territory where the power of traditional chiefs was still strong, with the result that public action at the local level was nonexistent or redundant.

The first Local Government Act relating to the various municipal councils was adopted in 1961 but ended in 1966 following a first coup d’état.

1967–80: First Attempts at Deconcentration

Various investigative commissions (the Mills-Odoi Commission in 1967 and the Siriboe and Akufo-Addo Commissions in 1968) and several reports on the subject led to the Local Administration Act (Act 359) of 1971, implemented in 1974 following a change of government in 1972 (Lt. Col. Acheampong’s administration).²

The 1971–74 system aimed to abolish the dual institutional pyramid inher- ited from the colonial period and to replace it with a single local public institution: the district council (DC), which was to have full responsibility for public policy in its territory. The DCs were to be assigned the ministries’ deconcentrated responsibilities, notably those of the ministries in charge of agriculture, education, planning, social affairs and community development, public health, industry, and sports.

The new system’s territorial network was fairly extensive and comprised 65 districts. Two-thirds of the DC members were appointed directly by the government, and the remaining third were designated through the chieftaincy system (Asante 2007).

This reform—which sought to rationalize deconcentrated structures while keeping intact the concept of a local structure with an assembly—was a fail- ure. It led to the creation of 65 monolithic administrations that had a hybrid status, were too large, had no decentralized responsibilities in the strict sense of devolved responsibilities, lacked autonomous financial resources, and were staffed by personnel hired in haste and often directly tied to local interests.

The attempt to integrate and steer deconcentrated government services within these councils effectively failed. The DCs were simply added to the local and regional deconcentrated central government services, and all were placed under the exclusive supervision of the central government’s financial administration.

Asante (2007) notes that, at this time, the central government recentralized in Accra various competences that had thus far been held by the districts: education (the Ghana Education Service) and transportation (the Omnibus Services Authorities).

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1980s: A Mixed System of Subnational Governance

The next stage in the organization of subnational government dates from the 1980s under President Rawlings’s Provisional National Defense Council (PNDC) government. It was in this setting of a strong, centralized government—little inclined to power sharing—that the “decentralized” local government structure was established. For the most part, it is still in force today. This change resulted from the 1988 adoption of Local Government Law 207, whose provisions were to be taken up and consolidated in Chapter 20 of the 1992 Constitution and later in the Local Government Act (Act 462) of 1993. These last two legislative texts still constitute the mainspring of decentralization in Ghana.

The reasons behind these reforms were both economic and political (Ahwoi 2010b). To begin with, the 1980s was the decade of structural adjustment policies (in the framework of Economic Recovery Programs [ERPs]) imposed by donors. The leitmotif of these ERPs was economic liberalization and the con- current goal of reducing government involvement in running the economy.

Although ERP I (1982–86) focused on economic stabilization policies (fighting deficits and inflation), ERP II (1986–92) was more oriented to structural policies such as infrastructure investments and improved efficiency in the public sector, which gave rise to the reforms to rationalize the functioning of the subnational institutions that had been in place since 1974.

When Rawlings’s government came to power in 1981, it immediately adopted the catch phrase of “give power to the people” and pledged to ensure “participa- tory development” (Lentz 2006; Ayee 1997). In this setting, such slogans can be interpreted more as a desire to seat the government’s power on popular support than as a true intent to share political power with the local levels of government.

The PNDC thus set up a mixed system of subnational governance that relied both on (a) local-level institutions with legal status and assemblies of elected councillors (to listen to grassroots demands), and (b) government-appointed councillors and government officials.

During a first phase, new districts were created, rising in number from 65 to 85 in 1988 and to 110 in 1992. The setting up of these new districts raised numerous issues relating to the delimitation of their borders and, thus, to the position of traditional chiefs. Overall, however, the borders of the new districts broadly mirrored those of the colonial chieftaincies (Lentz 2000).

In 1988, the DCs created by the 1974 reform were replaced by district assemblies (DAs). Whereas DC members had been appointed officials,³ the PNDC introduced a degree of representation by holding elections for two- thirds of DA members. The remaining third were chosen by the government from among civil society members, in consultation with the district secretary (who was appointed to head the DA by the president) and the traditional chiefs.

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The first local elections were held under this system in 1988–89. They were nonpartisan: candidates ran as individuals in each ward; if elected, they would represent their wards’ interests in the DA. These candidates could not, at least officially, be backed by political parties. In the single-party regime of the 1980s, this practice was in line with the populist and nonpartisan philosophy of the Rawlings administration, which aimed to mobilize initiatives and foster local consensus, transcending ideological divisions (Ayee 2008).

Today, local elections are still formally nonpartisan, although a multiparty system was introduced at the national level in 1992. In reality, however, starting with the 1994 local elections and then under the Kufuor administration (2001–08), national political parties have indeed given their backing to candidates in local elections (Asante 2007; Ayee 2008; Crook 1999).

The government’s nomination of one-third of DA members can be justified in different ways. For Kwamena Ahwoi, then minister of local government, these appointments were seen as a way of balancing the necessarily partial vision of elected members—who needed to satisfy their constituents and thus were potentially subject to pressure—against a more global vision of the district’s interests (Crook 1999; Ahwoi 2009). The vision of the national interest was carried by the district secretary (and later by the district chief executive [DCE] as of 1993).⁴

For political scientists, a totally different interpretation may be given: these appointments and the role assigned to the district secretary or DCE indicated a takeover of the DAs. Using case studies of how the DAs operated, Ayee (1996) and Crook (1994) have shown how difficult it was for DA members to oppose the DCE’s position in case of conflict because the latter enjoyed PNDC pro- tection and ultimately retained control over the allocation of resources to the district. Furthermore, many authors have also shown how the DCEs were able to play an active local role during national elections.

In addition to these operational modalities—which, with a few minor changes, are still in force today (as further discussed in the next section on local government organization in 2010)—in 1988, the DAs were assigned legislative and executive functions, responsibility over all matters pertaining to local development, the local delivery of infrastructure and essential services, and the task of ensuring security and local resource mobilization.⁵ In all, 86 specific (deconcentrated, delegated, and devolved) responsibilities were assigned to the DAs, from road construction and maintenance to ensuring health services and the supervision and control of slaughterhouses.

In connection with the transfer of deconcentrated responsibilities, the DAs—

as had already been planned in the 1974 reforms—were also to supervise the administration of 22 ministerial departments deconcentrated to the district level with a view to forming a governmental and financial system integrated with the districts. As a result, the DAs were also made responsible for establishing “composite” budgets, a process allowing all expenditures for a given

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responsibility (by the districts and as well as within the districts through ministerial budgetary lines, whether or not these expenditures transit through the national budgeting processes) to be synthesized so that the consolidated information could be transmitted to the Ministry of Finance.

As of 2010, the use of this approach was still pending. The text of the Com- prehensive Decentralization Policy was discussed before the cabinet but was sent back to the Ministry of Local Government and Regional Development and Environment (MLGRDE), which has now been asked to conduct additional consultations. The deconcentrated offices in the districts thus continue to record their spending separately from the DAs’ accounts.

The DAs were also given powers for local planning, with overall coordination to be provided by a regional coordinating council (RCC), an administrative structure also created in 1988 to head each of Ghana’s 10 regions.⁶

Finally, before the reform, the DAs had available a certain number of financial resources: taxes, license fees, voluntary contributions from wealthy members of the community, and external aid. The reform granted them “ceded” taxes from seven different sources, notably taxes on entertainment (casinos and gam- ing), business, and transport. All of these ceded revenues were to be officially shared among the DAs based on population density and level of development (Ayee 1996). These ceded taxes are said to have yielded ¢204 million, ¢594 million, and ¢2.1 billion (old cedis) (or ¢20,400, ¢59,400, and ¢210,000 [new cedis])⁷ in 1990, 1991, and 1992, respectively (Ayee 1996). Payment of these ceded taxes to the DAs came to a near halt in 1994 with the creation of the District Assembly Common Fund (DACF), as will be further discussed in the “Intergovernmental Transfers” section.

1990s: A New Pluralist Democracy

The year 1991 marked a turning point in Rawlings’s philosophy on government. Under pressure from donors, Ghana reinstated the principle of respect for civil rights and adopted a multiparty electoral democracy as the basis for its new constitutional government. Ghana thus switched from the PNDC’s military regime to a pluralist regime governed by President Rawlings and his National Democratic Congress.

The DAs were introduced into the 1992 Constitution of the Fourth Republic in the local government clauses.⁸ The DAs became metropolitan, municipal, and district assemblies (MMDAs), and the new legislation confirmed and strength- ened their principal characteristics.

The Rawlings government—which remained in power until 2000 following its successive reelections (in 1992 and later in 1996 under the multiparty regime)—consolidated the legal framework for decentralization throughout the 1990s. Additional sources of funding were granted through the DACF from 1993 on, thanks to the Local Government Act (Act 462).⁹

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For all that, not all of the measures taken necessarily worked toward clarify- ing the functions assigned to these assemblies and improving the financial and human resources that would enable them to perform these functions. Similarly, the governance framework of districts (DAs) and various ministries, departments, and agencies did not lessen the overlaps between devolved and deconcentrated entities.

Ayee (2008) cites the laws passed in 1995 and 1996 on the organization of health and education services as examples of this lack of clarity about the assemblies’ roles and funding sources. Whereas the DAs had been responsible for providing education and health infrastructures since 1988, these laws¹⁰ placed the administrative personnel in charge of delivering these district services under the authority of the ministry and, at the district level, under the authority of the DCE.

The activities and salaries of these personnel were financed directly by ministerial budget lines. The DAs were thus, in practice, deprived of the financial information and the authority over the personnel needed to accomplish their tasks.

2000–10: Toward a Renewal of Reform

From 2001 and throughout its term of office, Kufuor’s New Patriotic Party (NPP) administration, aware of the failings in local government structure, attempted to revive the reform by proposing plans to improve its functioning.

The National Decentralization Action Plan in 2003, amended by the Growth and Poverty Reduction Strategy (GPRS) II for the years 2006–09, was supposed to help relaunch the process. In March 2007, the MLGRDE declared that it wished to deepen political, administrative, and fiscal decentralization in Ghana and reaffirm the government’s commitment to a decentralization policy(MLGRDE 2007a, 7). Yet, at the same time, the NPP’s proclaimed determination to put an end to the central appointment of DCEs and make the office elective never mate- rialized, running counter to the stated objective of the decentralization policy.

In 2007, the Ghanaian Parliament adopted a rise from 5 percent to 7.5 percent of the portion of tax revenue ceded by the central government to subnational levels, thereby manifesting the will to transfer greater resources to the local level.¹¹ Additionally, the government, in conjunction with donor partners, concurrently put in place a new grant to districts: the District Development Facility (DDF) (further discussed in the “Intergovernmental Transfers” section).

Finally, in May 2008, the intent to implement measures to put decentralization into effect was reiterated at the cabinet level through the adoption of a framework document (which so far, however, has not been presented to parliament).¹² At the same time, the number of districts rose from 110 to 138 in 2003, and from 138 to 170 in 2008 (see “The Regions” subsection later), which potentially weakens their economic viability.

The December 2008 elections marked the return to power of the National Democratic Congress with the election of John Atta Mills. For Ahwoi (2010a),

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who was the minister in charge of the 1988 reform under Rawlings and now adviser to President Mills, decentralization needed to take on a new face and move decisively toward a real devolution of powers to the DAs. As in the past, it was reaffirmed that the regions and the RCCs, which have neither a legal status nor resources of their own, were not destined to play a prominent role. This stance (as had already been the case under the PNDC) was justified, in a context of ethnic fragmentation, by the threat of secession that had been fostered with the creation of the regions on account of their boundaries and size.

The path to decentralization, however, may still be long. The minister of the MLGRDE declared the following in a June 2009 press briefing:¹³

The functions and responsibilities under the [decentralization] policy are articulated under three levels:

1. The central government ministries and departments are responsible for policies, standard setting, and monitoring and evaluation.

2. RCCs are responsible for coordination and monitoring of activities of MMDAs in their regions.

3. The implementation function is discharged by the MMDAs.

This description of decentralization coincides equally well with the defini- tions of deconcentration, delegation, or devolution—depending on how one chooses to interpret “policies and standards.” This decentralization policy can therefore lead to three different outcomes. In the same declaration, the minister pointed out the importance of creating ongoing interaction between the government and the districts through the role of the DCE. As Ahwoi (2010a) notes, there are multiple conceptions of decentralization in Ghana.

Organization of Decentralized Local Government and Deconcentration in 2010

Decentralized Components

The meaning given to “decentralization” in Ghana covers, in fact, all territorialized public institutions or, in other words, both the deconcentrated institutions and the decentralized ones. The former correspond to the administrative agencies that execute the policies of the central government and its line ministries and thus embody deconcentrated public policy in the strict sense of the term (Dafflon and Madiès 2008). The latter are truly decentralized local authorities (in this chapter, the terms “local authorities” and “local government” refer to all decentralized tiers of government), with elected assemblies and autonomous powers devolved to them by law. They thus embody the decentralization of public policy—or what is also referred to as devolution.

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The confusion between these two types of administrative units is all the greater in Ghana given that the DAs, which are the main tier of subnational government, are established and operated on a mixed basis. They function not only as management bodies for deconcentrated central government services but also as decentralized local government bodies for the districts. There has been constant debate between the more powerful deconcentrated government agencies (endowed with longer-term and better-quality human and financial resources) and the more recent decentralized local authorities, which dispose of fewer resources. Yet the confusion between decentralization and deconcentration remains (Ahwoi 2010a).

The institutional framework for the overall system of local government institutions is defined in Chapter 20 of the 1992 Constitution and by the Local Government Act of 1993 (Act 462). The former stipulates that “Ghana shall have a system of local government and administration which shall, as far as practi- cable, be decentralised.”¹⁴ It also stipulates that the state shall “make democracy a reality by decentralising the administrative and financial machinery of government to the regions and districts and by affording all possible opportunities to the people to participate in decision-making at every level.”¹⁵

The objectives showcased by the Ghanaian government in this constitution give top priority to (a) local democracy building, (b) the territory’s economic and social development, and (c) poverty alleviation. The principles and arrange- ments for the process are also specified:

• Functions, powers, responsibilities, and resources must at all times be transferred to local authorities in a coordinated manner.

• The capacity of local authorities to plan, initiate, coordinate, manage, and execute local public policies must be built with a view to ultimately achieving the localization of these activities.

• There shall be established for each local authority a sound financial base with adequate and reliable sources of revenue to allow each to make the local public investments that they will vote for.

• Persons in the service of local authorities shall be subject to the direct control of their supervisory local authorities.

For its part, the Local Government Act (Act 462) of 1993 describes the

“decentralization policy” as a solution to

• Transfer functions, resources, means, and powers from central government ministries and departments to the districts

• Merge the government institutions in each subnational unit into a single administrative entity by integration of the institutions and the human resources and through the budgetary consolidation of government grants (which fund concentrated services) and local resources

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• Transfer responsibility for implementing public policies to the districts

• Assign functions and competences to each level of government

• Encourage citizen participation in the planning, implementation, provision, and maintenance of the public services that drive improved standards of liv- ing and ordered, equitable, and well-balanced development.

Development, in fact, is the core concept that summarizes the aspirations, objectives, and priorities of citizens; it is a responsibility that is basically shared between central government, local government, parastatal public institutions, and nonprofit organizations.

Table 3.1 summarizes all the laws and implementing decrees voted into force by successive Ghanaian governments and that give substance to the country’s structure of decentralized government.

Table 3.1 Timeline of Key Legislation and Other Legislative Instruments^a on Decentralization in Ghana, 1971–2009

1971 Local Administration Act 1988 Local Government Law (PNDCL 207)

1990 Local Government (Amendment) Law (PNDCL 235) Local Government (Amendment No. 2) Law (PNDCL 246)

Local Government (Amendment of Sixth Schedule) Instrument (LI 1508) Local Government (District Tender Board) Establishment Instrument (LI 1503)

1991 Local Government (Urban, Zonal, Town Councils and Unit Committees) Establishment Instrument (LI 1514)

1992 Local Government (Amendment of Sixth Schedule) Instrument (LI 1530) Local Government (Amendment of Sixth Schedule) Instrument (LI 1531) Constitution of the Republic of Ghana

1993 Local Government Act (No. 462)

• Tasks the MLGRDE with creating (through LIs) municipalities, which are called “districts” (MMDAs) and RCCs.

• Describes the political and administrative relationships between the MMDAs and RCCs.

• Defines the scope of the districts’ exercise of their executive and legislative powers by specifying the activities of their assemblies, their areas of competence—notably their responsibilities as local development agencies—and the fiscal and audit requirements. An LI referring to this law specifies, for each district, its scope of intervention and responsibilities. The planning functions devolved respectively to the MMDAs and RCCs, as well as to the MDAs, are specified in the National Planning System (National Planning [System] Act of 1994). To this end, regional and district development coordination units (RPCUs and DPCUs, respectively) were created (Act 462); their activities are governed by the guidelines issued by the MLGRDE and the National Development Planning Commission. These guidelines cover, among other things, the coordination between MMDA and RCC budget decisions and national-level budget planning. These texts place the RPCU in charge of coordinating all MMDA and RCC activities within the regional territory.

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District Assembly Common Fund (DACF) Act (No. 455)

Stipulates parliament’s annual obligation to transfer to the districts a minimum of 5 percent of the fiscal resources collected by central government. A specific public establishment—the Office of the District Assembly Common Fund—is in charge of allocating this grant and monitoring its use.

Local Government Service Act (No. 656)

1994 National Development Planning System Act, 1994 (No. 480)

Local Government (Urban, Zonal, and Town Councils, and Unit Committees) (Establishment) Instrument

1997 Financial Administration Regulations (LI 1234) Financial Administration Decree (SMDC 221) 2000 Audit Service Act (No. 584)

Assigns the responsibility for auditing public accounts to the auditor general. See also the Internal Audit Agency Act (No. 658), passed in 2003.

Public Procurement Act (No. 663)

Sets the rules and thresholds in regard to public procurement.

2003 Financial Administration Act (No. 654) and its implementing decree, the Financial Administration Regulations (LI 1802), establish the rules for the public accounting system and the modalities for preparing the budgets of districts and deconcentrated government administrative units (MDAs).

Internal Audit Agency Act (No. 658) tasks an agency with establishing internal audit standards and procedures within the districts.

Local Government Service Act (No. 656)

Distinguishes between the district and regional staff, on the one hand, and the central government staff, on the other. It describes the functions and organization of the Local Government Service, its technical support and MMDA and RCC support functions, and the auditing of MMDAs and RCCs to improve efficiency. A government undersecretariat (Local Government Service) is entrusted with developing training programs for these staffs.

2004 Financial Memoranda for MMDAs Financial Administration Regulations (LI 1802)

2008 Comprehensive Decentralization Policy Framework: Intergovernmental Fiscal Decentralization Framework 2009 A new text, LI 1961 (Local Government Service), was adopted in December 2009. This provides for

formal—if not very substantial—amendments to the administrative regime for some government officials working in the MMDAs. Thus, there will be a change in the employment framework of around 30,000 government officials, who will continue to be recruited by the MMDAs: they will be transferred from the civil service to the Local Government Service managed by the MLGRDE, which will then be administratively responsible for paying their salaries. This does not, therefore, seem to evidence the creation of a genuine local government civil service, which does not exist in Ghana.

Note: DPCU = district development coordinating councils; LI = legislative instrument; MDA = ministries, departments, agencies; MLGRDE = Ministry of Local Government and Regional Development and Environment;

MMDA = metropolitan, municipal, and district assembly; PNDCL = Provisional National Defense Council Law;

RCC = regional coordinating council; RPCU = regional development coordinating council; SMDC = submetropolitan district council.

a. Legislative instruments (LIs) belong to the category of “subsidiary legislation” (which also includes executive instruments, constitutional instruments, and regulatory notices), which must be the subject of prior submission before parliament and published in the Ghana Gazette. They come into force after 21 sitting days of parliament (which can vote to reject them with a two-thirds majority).

Table 3.1 (continued)

Structure of Local Government Institutions

The system of local government institutions in Ghana is summarized in fig- ures 3.1 and 3.2. On paper, it comprises three main institutions of a relatively

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different nature: on the regional level, the RCC; on the intermediary district level, the DAs; and on the subdistrict level, the unit committees (UCs). Figure 3.1 shows the links between the central authorities, the deconcentrated bodies (RCCs), and the MMDAs. Figure 3.2 shows intra-MMDA deconcentration.

The Regions

Ghana’s 10 regions are deconcentrated administrative institutions. Their decision-making body is the RCC governed by Article 255 of the Constitution and Article 141 of the Local Government Act. Each RCC has a chairman and

Figure 3.1 Organization of Decentralized Authorities and Deconcentration in Ghana, 2010

Source: Data compiled by the authors based on legislation in force in 2010.

Note: MMDA = metropolitan, municipal, and district assembly.

a. See box 3.2.

Chieftaincies^a

Decentralization Component Deconcentration Component

Local Government

Metropolitan Assemblies

(6)

Municipal Assemblies

(40)

District Assemblies

(124)

Close Supervision

Subunits of MMDAs with some autonomy but limited powers

Administrative Units

Districts (170)

Regional Coordinating

Councils (10) Central Government

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a presiding member elected with a two-thirds majority by the RCC, which is made up of

• The regional minister, a minister of state appointed by the president of the republic with the approval of parliament, who acts as chairman;

• One or more deputy ministers (appointed by the president of the republic);

• The (elected) presiding member of each DA within the region;

• The DCEs (appointed by the president of the republic);

Figure 3.2 Organization of Local Public Institutions in Ghana, 2010

Source: Data compiled by the authors based on legislation in force in 2010.

Metropolitan Assemblies (6)

population > 250,000 inhabitants

administrative, legislative, executive, fiscal authority

Municipal Assemblies (40) population > 95,000 inhabitants (in a single

agglomeration)

District Assemblies (124) population > 75,000

inhabitants rural districts or small towns

Submetropolitan District Councils (31)

Town Councils

implementation and mobilization responsibilities

Zonal Councils (108) population > 3,000 defined territorial limits

Urban Councils (34):

population > 3,000 Town Councils (250):

population 5,000–15,000 Area Councils (826):

combined population < 5,000

Unit Committees (16,000) population 500–1,500

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• Two representatives of the (traditional) chiefs from the Regional House of Chiefs; and

• The regional heads of the deconcentrated services of line ministries (appointed by the president of the republic or the ministers), as nonvoting members.

The RCC is therefore heavily dominated by members appointed by the president or by the central government. In parallel to the RCC, the president appoints a regional minister for each “region” from among members of parliament and after prior approval of parliament.¹⁶ Furthermore, the president has the power to appoint one or more deputy ministers, also chosen from among the members of parliament.¹⁷ These deputy ministers are more directly in charge of running and coordinating deconcentrated government services within the regions.¹⁸

The RCCs monitor, coordinate, and evaluate the performance of the districts within their regions. They check on the use of the material, financial, and human resources made available to the districts by the central government agencies.

They examine the action of public services in the region.¹⁹ They coordinate, notably through the regional planning coordination unit, the districts’ planning activities with those of the central government in the framework of the National Development Planning Commission (NDPC) of 1994. Overall, the RCC’s functions thus basically involve administration and coordination. The RCCs are not political bodies that drive and produce autonomous and decentralized public policy. Their democratic legitimacy is at best indirect. Their action is thus best qualified as deconcentrated.

The Districts

In compliance with the Local Government Act (Art. 162), the term “district”

designates the geographic zone over which an eponymous elected assembly, the DA, has jurisdiction. These DAs take on different names depending on their demographic and rural or urban characteristics (metropolitan assembly or municipal assembly, respectively). On paper, they represent the tip of a four-tier metropolitan or three-tier municipal or DA institutional pyramid (see figure 3.2 and box 3.1).²⁰ None of these subdistrict structures have an independent legal status; they are simply administrative subdivisions.

Changes in institutional divisions since 1993 In 1993, there were 110 districts. This number rose to 139 in 2004. In the early 2000s, Ghana thus had 139 “municipalities” (MMDAs), ranked by population size: 4 metropolitan district assemblies with populations over 250,000 inhabitants (Accra, Kumasi, Shama Ahanta East, and Tamale); 11 municipal district assemblies (with populations over 95,000); and 124 DAs (with populations over 75,000).

These divisions were again modified in 2007–08, when two municipal assemblies were transformed into metropolitan assemblies (Cape Coast and Tema)

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B O X 3 . 1

The Operating Modalities of Subdistrict Structures

At the base of each pyramid, there are, in principle, unit committees (as shown in figure 3.2). The UCs are composed of an assembly of, at most, 15 representatives elected or appointed for a four-year term. Ten of these are elected during a meeting (called an “electoral commission”) of all residents in the UC’s territory (in practice, groups of residents [500–1,000 in rural areas and 1,500 in urban areas]), and five other members (maximum) are appointed by the DCE. These UCs do not have an independent legal status. Their functions are described by the LI 1589 (5th Section), to which can be added the functions delegated to them by bodies higher up the institutional pyramid (the town, submetropolitan, zonal, and area councils). The 15 functions assigned to a UC by law primarily concern the census of taxpayers and assistance with tax collection within its territory, pest control, the organization of communal labor, waste collection, civil status records, civic education, and general control of MMDA staff activities within its territory. The UCs are accountable for their actions before the DA through the urban, town, or zonal councils.

The second tier of the institutional pyramid comprises the urban, zonal, and town councils, created by decree by the MLGRDE. Urban councils, zonal councils, town coun- cils, or submetropolitan district councils (13 of the latter existed in 1996) are created depending on the local context. Their assemblies (elected for four years on a similar basis to the UCs) comprise 25 to 30 councillors in the urban councils and 15–20 councillors in the town and zonal councils. At most, one-third of their representatives are the elected members of the metropolitan assembly from the respective submetropolitan district council’s area; a maximum of half their representatives are from the UCs within that area, and the remainder are appointed by the DCE from among the inhabitants residing in the area and after consultation with the DA and the traditional authorities.

The submetropolitan district councils (SMDCs) were established because of the complexity and size of some agglomerations. As of 2007, the Metropolitan Assembly (MA) of Accra comprised 11 SMDCs, compared with 6 previously, and the MA of Kumasi has had 10 since 2003, relative to an earlier 4.

In smaller cities (population usually agglomerated in several centers and more than 15,000 inhabitants but without the complexity of metropolitan areas), urban councils (34 in 1996, excluding Accra) can be created under the same conditions.

Town area councils are created for the municipal assemblies that have only one agglomeration with an identifiable local interest, communication infrastructure, cadas- tral elements, district limits, and a population of more than 3,000 inhabitants. These councils are intended as structures for mobilizing local democracy. Town councils also exist in metropolitan assemblies, but in this case they cover a larger population (sometimes more than 50,000 inhabitants).

None of these subdistrict structures are independent legal entities; they are simply administrative subdivisions, their personnel appointed by the DA. They are structured (continued next page)

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and 31 new districts came into being. This involved both new entities—as in the case of the four municipal assemblies created in the Greater Accra region (Adenta, Ashaiman, Ga South, and Ledzokuku-Krowor)—and the splitting up of existing DAs to create 26 new DAs. Overall, in 2008, Ghana had 170 districts (6 metropolitan assemblies, 40 municipal assemblies, and 124 DAs).

The mushrooming of new districts in 2008 can be explained by a combina- tion of factors of varying importance, depending on the case:

• Demand for more self-governance by an ethnic group that felt it was a minority within a district

• Presidential favor for this group, which would thus have its share of the DACF funding

• Improvement in the quality of local services.

District bodies The DAs are composed mostly of elected representatives (70 percent), with the president appointing the remaining 30 percent after consulting the traditional chiefs and other local interest groups. The members of parliament elected in the district also sit on the DA but do not have voting rights. DA elections are held every four years. The presiding member of each district is elected for a two-year (renewable) term by the DA from among its members. Apart from presiding over the DA, the presiding member’s functions are only honorary and ceremonial.²¹

Within each district, the executive and administrative functions are performed by an executive committee whose members (numbering no more than one-third of the total number of assembly members, excluding its president) are elected by the DA members.²²

in subcommittees, mainly including a services and development subcommittee and a finance and administration subcommittee. The list of their functions was established by law.^a In principle, they are in charge of forecasting fiscal revenues at the rates set by the DA or at area-specific rates (if applicable), collecting taxes, preparing the current and capital budgets to be approved by the DA, and any other tasks that the DA delegates to them. They do not have the right to levy taxes. They may each have their own bank account, funded by their zone’s specific taxes, and approved by the DA to finance projects in their territories; a portion (50 percent) of the district taxes collected in their territories; and funds allocated by the DA, notably from central government grants and subsidies. They provide the DA with quarterly reports on their activities and accounts.

a. LI 1589, Art. 34–35.

Box 3.1 (continued)

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The executive functions are performed not by the presiding member but by the DCE. “District chief executive” is the generic term to designate the executive head of a district, municipality, or metropolis. The DCE is appointed for four years by the president with the approval of two-thirds of the assembly’s voting members. He or she represents the central government within the district.²³ As such, the DCE is the head of the district’s general administration and is assisted in this function by the district coordinating director and two deputies (the deputy directors of finance and budget and of general administration).

In addition to functioning as head of the general administration, the DCE automatically chairs the executive committee, which confers considerable power on him or her.²⁴ Thematic subcommittees are created (development planning, social welfare, works, justice and security, and finance and general administration). The executive committee coordinates the work of the subcommittees, executes the decisions made by the assembly, supervises the running of district services (with the DCE), and executes the development plans of the district substructures (the UCs, areas, towns, and submetropolitan districts).

The district services are required to be organized as departments, the list of which is set by law (12 services including administration, finance, education-youth and sports, public health, agriculture, land registry, social welfare, natural resources, forestry-hunting, works, industry and trade, and risk prevention). These services correspond to the departments that structured the central government services before decentralization. De facto, they continue to report to RCC units and operate as deconcentrated departments within the districts.

District functions In addition to the packages of responsibilities transferred under the decentralization laws, the districts are assigned limited functions that are listed by law. The districts are responsible for

• Development and planning within their territories;

• Infrastructure development;

• Delivery of local public goods and services;

• Environmental improvement;

• Ownership of public infrastructure construction in the district; and

• Action as agents of central government for certain functions (such as regulating public auctions or alcohol licenses).

Local development plans (and the associated budgets) are prepared in collaboration with the regions (RCCs) and then submitted to the NDPC for approval, with the budgets being submitted to the Ministry of Finance.²⁵ The district development plans summarize and coordinate the plans of the subdistrict entities. The district is assisted in its planning task by a structure

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B O X 3 . 2

The Local Role of Chieftaincies in Modern-Day Ghana

The chieftaincy institution in Ghana is, to some extent, a construct of the Anglo-Saxon colonial system—yet only to a certain degree because the introduction of the hierarchical chief system (head chief, divisional chief, and so on) at the time the Native States Authorities were created was largely based on precolonial political structures (Lentz 2000). After independence (despite the determination of various administrations to lessen their role, above all their political role), the chieftaincy system persisted and adapted. Far from being eliminated on independence, the system was given represen- tative institutions. For instance, the National House of Chiefs, which brings together the delegates from all the regional houses of chiefs, dates from the end of the 1960s, as does the title of paramount chief (Jacquemot 2007).

Although the chiefs no longer have as much power as they did under the colonial regime—mainly due to the arrival of competing structures (districts and other public institutions)—their influence is still far from negligible at the local level, particularly in rural areas. They are, of course, active in the public institutions. When the local government councils were created, the chiefs appointed under the colonial regime were assigned a fixed quota of seats in the assemblies. Although ineligible, they are still present today in the RCCs and DAs, primarily because they participate in the appointment of one-third of assembly members.

However, the chiefs draw their prestige not so much from their presence in these institutions as from the social and economic role they play. They have relatively strong judicial power, notably in civil affairs (for example, inheritance and family law) and land tenure matters, even though a state tribunal system is in place. They are called on, for example, to resolve conflicts over land and between individuals (conflicts between family members or neighbors). They also have redistributive obligations toward their com- munities and, for this, have access to financial resources primarily from land (stool/skin lands)^a and natural resources(mines), which may also prove to be sources of conflict with the local authorities (Rochegude and Plançon 2009).

Today, the strength of the chieftaincy system paradoxically lies in the fact that it dove- tails the role of preserving the traditions it personifies (essentially cultural ones) with the role of an educated elite well acquainted with development issues—a role that many chiefs assume more than adequately. Lentz (2000) explains how the first generation of (traditional) chiefs chosen by the colonialist power from among traditional figureheads was replaced in the 1950s by a second generation of chiefs who had been educated in schools for chiefs’ sons and were thus familiar with how the colonial authorities functioned. Along the same lines, Jacquemot (2007) explains how today’s chiefs have adapted to the changes in modern society, how they are educated, how they monitor development projects, and, depending on their abilities, how they mobilize their networks (even internationally) and resources for such projects—in the best cases, in collaboration with the district authorities.

It is probable, however, that the chiefs’ still-influential role is simply the counterpart of the local authorities’ current weakness in terms of both funding and human resources.

a. Stool/skin lands are customary lands owned by stools, skins, clans, and families.

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that brings together all central government services in the district for this purpose.

Issues and Questions about the Institutional Framework

The institutional framework elicits four major issues—the first two of which touch on the management of the MMDAs, and the second two of which relate to their number, their structures, and their relationships with other entities:

• The position and power of the DCE and, more generally, of appointed DA members in a local authority that, as a decentralized entity in principle, has direct democratic legitimacy. On paper, the president proposes a DCE nomi- nee, but this proposal must be ratified by two-thirds of the DA council members. If the proposed candidate obtains less than 50 percent of the votes in the first round, the candidacy is usually withdrawn. In practice, several cases of such withdrawal were reported to us. Yet, also in practice, after a presidential election, all DCEs can be replaced and sometimes are. The presidential will seems to be a decisive factor, in seeming contradiction with the texts, which theoretically give the DAs substantial power. For instance, following the presidential elections in December 2008, the new president, sworn in in January 2009, replaced the DCEs in April–June 2009 as well as the appointed members of the MMDA councils. President Kufuor, who was in power from 2004 to 2008 and replaced by Mills in 2009, had, during his campaign, proposed to make the position of DCE elective. At the end of his term of office, however, he indicated that he had no regrets in not having carried this through.

• The efficiency of a tight pyramidal network of nested district-level institutions (akin to the Russian matroichka dolls), which are intended to facilitate the bot- tom-up expression of grassroots democracy. The second issue is directly con- nected to the first. Because the district executive has no direct democratic legitimacy, Ghanaian legislators have deemed it necessary to cover the districts with a close network of interconnected institutions. Yet this system is not delivering results, largely because it relies throughout on voluntary and unpaid work. Moreover, the number of actors foreseen by law in these substructures’ assemblies is very (excessively) high. A proposal, currently under study, would reduce the number of elected UC members from 15 to 5 plus eventually two appointed members. On an even broader scale, it is hard to understand how these subdistrict institutions can be made operational. In other words, how can functions be delegated to these structures if they are not given the authority (and responsibility) to take on the financial consequences of their decisions—or, more explicitly, if they do not formally hold some fiscal responsibility? Yet in the current state of affairs, the DAs cannot delegate the power to legislate, levy taxes, or contract loans to the subdistrict entities.

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• The delimitation of district and constituency boundaries. There are 230 elected members of the national parliament (MPs), or 1.23 MPs per district. In addition, each electoral constituency is, by design, contained within a single district, which itself may comprise several constituencies. These divisions raise the issue of the interactions between the MMDAs and the MPs, who receive a small development grant (see the subsection under “Intergovernmental Transfers”: “Direct Financial Transfers: DACF and DDF”). One possible reform would be to redraw the boundaries of both the districts and constituencies so that (ultimately) the two converge toward an identical mapping of districts and constituencies. A tailored solution would need to be found for the metropolis of Accra, as is always the case for capital cities.

• The creation of new local authorities. The creation of new districts is explicitly provided for in the Local Government Act. The executive power can create new local authorities or redefine existing ones using the available executive instruments and legal instruments. However, parliament’s role in this process is relatively vague (Ferrazzi 2006), which further weakens a local government network that is already fairly perme- able to presidential intervention. Many of our interlocutors spoke, often somewhat negatively, about the recent sharp increase in the number of districts and the ensuing consequences, more specifically, the financial ones. This proliferation has sometimes been described as opportunistic and unrelated to the need for effective and efficient delivery of local public services or to what is required for the deconcentration of central government services.

The Decentralized Budget Legal and Regulatory Framework

The Constitution of Ghana provides a solid, if not comprehensive, foundation for the budgetary and financial construction of local governance. It notably stipulates that each local authority must have “a sound financial base with adequate and reliable sources of revenue.”²⁶ The DACF is one tool used for this purpose.²⁷ The constitution also mandates that parliament annually allocate at least 5 percent of total government revenues to the DACF.

Yet the pivotal law in this area is the Local Government Act 462 of 1993, which lays down the districts’ budgetary and financial framework, including the description of 10 sources of internally generated funds (IGF), which are equiva- lent to “own resources”; the regulatory budget framework; rate setting for taxes and fees (including the possibility for the government to set guidelines in this area [Art. 100]); and the regulatory framework for local government borrowing, financial control, and the DACF.

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In addition to the LG Act, the following two laws establish key aspects of the legal and regulatory framework for local finance:

• The District Assemblies’ Common Fund Act (Act 455) of 1993, which sets out the conditions for sharing and distributing the DACF among the districts (according to a distribution formula approved by parliament [Art. 2]), providing that the local authorities supply the data required by the DACF’s administrative services

• The National Development Planning (System) Act of 1994 (Act 480), which provides the legal bases for the oversight, particularly budgetary and financial oversight, of district and RCC planning activities (through guidelines).

It would, however, be an overstatement to say that the decentralized local authorities benefited from an adequate budgetary and financial framework right from the mid-1990s and that the related laws immediately produced their full effects. The central government was aware of the existing shortcomings and began therefore to tackle this issue in 2000 and especially 2003. It came up with quite a considerable number of legislative texts and innovations conducive to more effective financial decentralization.

For example, although the 1992 Constitution²⁸ placed the auditor general in charge of verifying that the MMDAs keep their accounts, use their funds, protect assets, and conduct their financial operations in an appropriate manner, it was not until 2000 that the Ghana Audit Service Act (Act 584) defined the procedures for auditing the MMDAs’ books.

The Public Procurement Act (Act 663) of 2003 defines the conditions for public procurement procedures applicable to the MMDAs. These procedures allow the MMDAs the freedom to undertake works projects valued at under

¢2 million and make purchases of less than ¢1 million for goods and services but oblige them to consult with the central government for operations over these thresholds.

The Internal Audit Agency Act (Act 658) of 2003 defines the standards and procedures applicable to MMDA internal audits.

The Financial Administration Act (Act 654; FAR) of 2003, the Financial Administration Regulations (LI 1802), and the Financial Memoranda for Dis- trict Assemblies of 2004 make up the core texts defining the MMDA budgetary and financial framework. The Minister of Finance and Economic Planning is responsible for presenting fiscal policy to parliament.²⁹ The Controller and Accountant General’s Department (CAGD) is the chief disbursement agency.

These texts also define the procedures for preparing and presenting MDA and MMDA budgets. Articles 186 and 1802 of the FAR require that accounting be carried out on an “accrual” basis and not according to cash-based accounting. The various offices of CAGD provide support to ensure compliance with accounting standards and procedures.

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The FAR also specifies the responsibilities of the staff involved in the financial management of the MMDAs and the corresponding obligations, notably in terms of reporting requirements. In addition, it describes the adjustments necessary to ensure harmonization between the MMDAs’ annual accounts and the multiyear accounts relating to the financing and execution of multiyear activities undertaken within the medium-term development policy framework.

It specifies the respective responsibilities of the persons charged with financial management of the MMDAs as well as those in the MDAs, mainly with a view to ensuring that the decentralized authorities comply with the procedures, reporting, and supervision imposed by the Receiver General. The accounting frameworks and classifications required by the auditing procedures for local government finance are also described. The FAR and its regulations are intended to serve as the benchmark in the area of public financial management. Yet the information collected in the field would seem to indicate that most MMDAs fail to comply, albeit without incurring any penalties in practice.

The Internal Revenue Act, Registration of Business (Act 684) of 2005 reviews the list of revenues, defined by the Local Government Act of 1993, that are collected by the central government and shared with the MMDAs.

Finally, legislative and regulatory production in recent years has chiefly focused on the question of “composite budgeting”—an innovative reform intended to synthesize within a single document the budgets of local authorities (MMDAs) and the central government services located in the same administrative unit. This reform, planned for rollout in 2008, is slow to enter its decisive phase, and although some local authorities have already adopted it, this by no means is the case everywhere.

MMDA Budgets and Accounts

The DAs vote on their own budgets. They thus have a certain degree of autonomy over expenditure in the sense that, even though a large part of their spending is constrained by central government decisions, they still retain some residual power to allocate expenditures funded by their own resources, over which they have some discretionary power (see, in the “Local Taxation” section, the subsection on “Internally Generated Funds”).

The districts are responsible for preparing and approving “their” annual budgets.³⁰ The district budget contains the revenues and expenditures not only of the district stricto sensu as a decentralized local authority—that is to say, including those of all departments and organizations under its control—but also those of the District Coordinating Directorate, mainly covering the revenue and expenditure of the annual investment programs of the departments and organizations under the DA’s authority.³¹ The entire district budget, in a broad sense, is prepared by the district bodies, notably the budget committee, which takes into account the guidelines issued by the Ministry of Finance and the

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DACF administration. The budget is submitted to the RCC before the end of the financial year (that is, before the end of the calendar year). The RCC collates and coordinates the budgets of the districts (broadly speaking) within its regional jurisdiction, then submits the aggregate budget to the Ministry of Finance as well as to the Ministry of Local Government and the NDPC.

As a result, the budgetary autonomy of subnational government units, guaranteed by Article 11 of the Local Government Act of 1993, is—both in practice and in law—heavily constrained not only by the consolidation process at the regional level but also by the ex ante endorsement required from the Ministry of Finance.

Budget construction is subject to the following presentation rules and procedures (MoFEP 2004):

• The financial statement, as of December 31, must show the total variation in the surplus balance over the year; under revenues, it must report “own” revenues and transfers received and, under expenditures, recurrent expenditures and capital expenditures. It must be linked to previously approved budgets.

• The DA must approve the initial budget before the start of the financial year (January 1). It must contain the following items:

°

° Summary of revenue for the year

°

° Summary of expenditure for the year

°

° Estimated revenue for the coming year

°

° Estimated expenditure for the coming year

°

° Receipts and payments recognizing loans.

• Budget revisions may be voted on during the financial year, but they are subject to constraints imposed by the finance authorities (current expenditure and revenue) and the DACF administration (investment spending).

• The budget must be presented using the classification given in table 3.2.

The monitoring of budget execution relies on the monthly comparison of the budgeted expenditure and revenue with actual expenditure and revenue.

It should be mentioned that in Ghana, the “single account” rule does not exist.

Each district is authorized to open bank accounts for its revenues (minimally one account for own revenues, one for transfers from the central government, one exclusively reserved for receipt of revenues from the DACF, and so on). In practice, local authorities have many separate bank accounts. The number of accounts held depends in part on the requirements of donor partners, who often find it more convenient to open a specific account for each project.

A monthly balance is established to check for consistency and to consolidate the ledger balances, and the resulting items are compared against the corresponding budget items. Any observed divergence must be accounted for by the

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heads of the departments concerned and may (under fairly strict conditions) give rise to budget revisions approved by the DA and transmitted to the RCC and the relevant ministries.

Expenditure is controlled by a six-stage administrative chain, beginning with the approval of the DCE, then the district coordinating director, the district

Table 3.2 Budget Structure of Local Government Units in Ghana (Estimated Revenue and Expenditure), 2009

Revenue Expenditure

• Rates

• Lands (stool lands and royalties)

• Fees and fines

• Licenses

• Rent from DA-owned property

• Transfers and grants (DACF, ceded revenues, salaries, donor support, transfers)

• Revenue from the rental of assets and investment income (equipment rentals, capital income)

• Miscellaneous

Personnel emoluments

• Salaried posts

• Assembly’s direct employees

• Social contributions

• Assembly members’ allowances

• Other allowances Administration

• Utilities

• Office cleaning

• Consumables

• Printing and publications

• Rent

• Travel and transport

• Maintenance

• Financial charges

• Other allowances Service activity

• Training

• Consultancy

• Materials and consumables

• Printing and publications

• Rent of plant and equipment

• Travel and transport

• Maintenance

• Financial charges

• Other allowances Investment

• Construction works

• Rehabilitation

• Purchase of plants, equipment

Source: Local Government Act 1993 and related Acts and implementation decree up to and including 2008.

Note: DA = district assembly; DACF = District Assembly Common Fund.

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finance officer, the district budget officer, the internal auditor, and the department heads.

The books of accounts for local government include a treasury cash book (to be balanced at every month’s end) and a treasury ledger comprising four sub- heads (revenue; expenditure; revenue, expenditure, and balance; and “below the line” accounts for other operations). All of these documents, classifications, and accounting conventions are defined by the Financial Memoranda for District Assemblies of 2004.

The revenue and expenditure statement for the financial year and the balance sheet as of December 31 are produced annually, published, and sent to the offices of the Auditor General by March 31 following the close of the financial year, as well as to the Ministry of Local Government.

The central Auditor General is responsible for verifying the MMDAs’ financial statements and reporting to parliament. The Auditor General verifies, above all, that the DACF funds are properly used, as specified by law, for investment expenditure and not for “recurrent” expenses.

MMDA Borrowing and Debt

The MMDAs hold accounts with private banks, which may be interest bearing.

At year-end 2006, bank deposits amounted to ¢12.1 million, and at year-end 2007, ¢4.3 million. In total, the MMDAs’ net financial assets minus liabilities were ¢13.3 million in 2006 and ¢5.7 million in 2007. An examination of the data indicates that for the two years in which the MMDAs ran deficits (expenditure exceeded revenue), the deficit at the national level was ¢4.1 million in 2007. This corresponds to excess spending of 1.7 percent over revenues, but this national figure hides wide disparities between regions. For instance, expenditure in the Upper West region exceeded revenues by 68 percent, whereas the Accra region had a surplus balance of 13 percent.³²

Furthermore, the MMDAs cannot freely dispose of their physical assets and cannot transfer them without prior authorization from the Ministry of Local Government.

The MMDAs can raise loans or obtain overdrafts after approval from the Ministry of Local Government in consultation with the Ministry of Finance.³³ This authorization is not required if the loan amount is less than ¢20,000, a ceiling that has not been revised since 1993 and that is now derisory relative to the MMDAs’ financing needs. A loans register is kept, showing the year-end outstanding balance. In fact, it appears from consulting the accounts of a few MMDAs that they borrow primarily to meet cash-flow needs while awaiting DACF disbursements, which are late and irregular.

Recent initiatives have been documented (Government of Ghana and Devel- opment Partners 2007, 61) that seem to indicate that the two ministries directly